Weinheim When Mohsen Sohi took over the management of the Freudenberg Group more than ten years ago, he was the first foreign manager to head the family-owned company. Internally, the personnel details were noted with a certain reluctance at the time.
But the native Iranian with a US passport runs the company in the spirit of the family shareholders, including constant growth. Freudenberg specializes in insulating materials, vibration technology and seals. The company supplies, for example, the automotive, medical and aerospace industries. The Vileda brand, for example, is known from the trade.
Under Sohi’s leadership, Freudenberg has weathered the various crises of recent years. In an interview with the Handelsblatt, however, the manager states that the first year of the Ukraine war in 2022 was even more difficult for the company than the pandemic years of 2020 and 2021.
Mr. Sohi, Freudenberg has been unusually quiet in recent years. Does the company have something to hide?
I take that as a compliment for our work. We have nothing to hide, but external communication was not high on our agenda. The priority was to communicate a lot internally, to manage the crisis and to keep the company on course.
That has obviously succeeded. Despite the economic consequences of Russia’s war of aggression against Ukraine, sales rose by 17 percent and earnings by seven percent…
Yes, 2022 was successful, the numbers are good. But that had its price. It was hard work. Our teams were all very exhausted. Executives have told me that 2022 was more difficult than 2020 and 2021.
More difficult than 2020, when the pandemic messed everything up and nobody knew what was going to happen next?
The terrible war in Ukraine has far-reaching consequences. Supply chains were chaotic in 2022, energy prices were high, and we had inflation averaging nine percent for Freudenberg.
“I have hope that 2023 will be a little better”
That you couldn’t pass on to your customers?
At least not completely. We were able to increase prices by an average of seven percent.
Will 2023 be better?
The situation in the supply chains has improved somewhat. Inflation has come down a bit but is still high. There is a lot of geopolitical tension. While I have hope that 2023 will be better, we remain very cautious.
How important was it during the crisis that there was a family behind Freudenberg?
First of all, I have to thank the staff and the management team. You play a key role in Freudenberg being so successful. But of course the support of the family was and is very important.
To what extent is the family involved in such difficult situations?
We have around 360 shareholders. Thanks to the stable ownership structure, we are a strong and resilient company. We discuss the strategy and the entrepreneurial orientation in the appropriate committees between the company management and the shareholders’ committee.
Freudenberg is a conglomerate active in numerous sectors and markets. How do you control such a complex structure in a crisis?
We are not as complex as it might appear from the outside. We have a very good management system and can react very quickly across the group.
You have to explain that.
The Executive Board determines the strategy and budget with the individual Business Groups, otherwise the Business Groups have a great deal of freedom. We get a report every month and are well informed about the individual transactions. In other words: We sometimes experience surprises, but not very often, and then we can act very quickly,
What remains is your enormously broad portfolio. How many customer markets do you serve and in how many geographic markets are you active?
We have eleven business groups, serve 40 market segments and are active worldwide. Only 15 percent of sales still come from Germany. Our strategy is to generate a third of sales in America, Europe and Asia. We’re making progress here. The North America region contributed 29 percent of sales last year, and Asia 21 percent. For example, we are currently looking at growth opportunities in Southeast Asia.
Fleece is the basis for many products from the Freudenberg family company in Weinheim.
(Photo: press photo Freudenberg)
Without China, however, you will hardly achieve a third of sales in Asia. Are you sticking with China despite the current debate?
China is a very important market for Freudenberg. We will continue to invest there. We don’t export much from China, we produce in China for China. It stays that way.
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Even if politicians in Berlin or Brussels would like to reduce dependence on China?
Freudenberg is not dependent on China. Incidentally, we would all be well advised to talk more with China than about China.
The USA lures with attractive framework conditions and high investments through the Inflation Reduction Act, especially in a climate-friendly economy. How attractive is this for Freudenberg?
We will invest more in the USA. Our Performance Materials business area, which produces special materials for submarine cables, for example, is very energy-intensive. If we want to build a new factory here, the USA is a very good candidate when it comes to choosing a location.
That doesn’t sound good for your home location Germany.
We are also investing a lot in Germany, around 145 million euros last year alone. This is where our company headquarters are, this is where our central research and development is located. But we have to be careful not to overdo things in Germany when it comes to energy costs and bureaucracy. For example, I am concerned about the very demanding requirements for reporting on the subject of sustainability, i.e. the ESG goals.
With the special ring, rotating shafts could be sealed for the first time. It is one of Freudenberg’s historic inventions.
(Photo: Freudenberg)
Are you afraid of de-industrialization in Germany?
I would not go so far. Germany is underestimated when it comes to innovation. The country is very strong in mechanical engineering and general industry. We always look very closely at IT and high-tech. But we forget that this midtech is the basis that the world needs.
To what extent do innovations currently contribute to growth at Freudenberg?
A third of our products are no more than four years old. We invest around five percent of sales in research and development. That means: more than half a billion euros a year. And together over the four-year period mentioned, more than two billion euros.
How do you manage to remain the leader everywhere with this five percent? Freudenberg has thousands of products.
All of these products are based on five to six technology platforms. With these platforms we try to be and remain world class. We then develop our innovations from this.
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What are these, for example?
In medical technology, we are developing new coatings for stents, which are often implanted after a heart attack. The fuel cell is another topic. We supply components for the cells, such as gas diffusion layers and seals. But we are also working on the entire fuel cell system for buses and trucks as well as for maritime applications.
What makes you so sure that investing in fuel cells will ever pay off?
I’m not 100 percent sure. That’s not even possible, a residual risk is an integral part of innovation. But our components business is already profitable. Of course, we won’t be in the black with fuel cells in four or five years. But a lot is happening on this topic right now.
What for example?
We work together with the mobility company Flixbus and the automotive supplier ZF Friedrichshafen on fuel cells in the heavy-duty sector. The first prototypes will be on the road this year or next. For maritime applications, we work closely with the Meyer shipyard in Papenburg and the Lürssen shipyard in Bremen.
Don’t you have an eye on the car market?
We have to focus. The development work on the fuel cell is complex. We will have to invest many hundreds of millions of euros over the next few years.
You founded Freudenberg e-Power Systems last year. Is this the preparation for an IPO of the fuel cell activities to finance these high investments?
Not in the next two to three years. Let’s focus on the technology for now. Such a deal must be well prepared for the stock market.
The IPO of vibration control technology Vibracoustic has been in preparation for some time. is he still coming?
The project is in place, but we will not place Vibracoustic at any price. Business is developing well and Freudenberg is solidly financed. we are patient
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Freudenberg has made regular purchases in the past, but rather smaller additions. When is the big deal coming?
We will continue to make these smaller bolt-on acquisitions, although prices have risen recently, but it is representable. The situation is different with larger acquisitions. We were planning a larger acquisition that would have meant a new business area for Freudenberg. But the prices were way too high.
Now you’ve made us curious. What was it about?
We had bid for a manufacturer of pharmaceutical packaging and were willing to pay 2.2 billion euros for it. But the seller wanted 2.6 billion euros. That doesn’t make any sense to us then. When we make an acquisition, we want it to be commercially successful and financially sound. After all, we are responsible for our shareholders’ money.
What could Freudenberg do financially?
Four to five billion euros would be possible without any problems.
Mr. Sohi, thank you very much for the interview.
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